Asian Tigers: Economics and the Development of the Asian Nations

From a Lecture Series Presented by Professor Pamela Radcliffe, Ph.D.

The Japanese model of development has transformed not only its own economy but also that of the entire region, when in the 1960’s, Hong Kong, Singapore, Taiwan, and South Korea embarked on a Japanese-style development model. All four lands, which became known as the Asian Tigers or the Gang of Four, had endemic problems similar to those of Japan.

Image of Spools of an industrial sewing machine in a factory, in the background woking a seamstress for article on asian tigersMaking Textiles Work for Them

The Asian Tigers had a lack of natural resources and a small amount of farmland. In 1945, they were also overpopulated and poor and could not feed their own populations. Not surprisingly, they also had low capital resources for development. So they faced some of the same general problems as Japan. As a result of these conditions, it is important to note that none of these countries could follow what had been the standard Third World model for development, which is to basically increase agricultural production and to mine gold, silver, or whatever natural resources the country has for export.

This was the classic Latin American model in the 19th century and would become the classic African model in the 20th century. So that option was not available; they did not have the farmland to do it, and they did not have the natural resources. There were strong incentives for finding other kinds of exports that would give the Asian Tigers the money needed to buy the food and other essentials they had to import.

Learn more: The Rise of the East Asian Tigers

Like Japan, then, the Asian Tigers embarked on a strategy to build cheap export manufactures using the same low-wage labor that could undersell First World products. As in Japan, they began in the textile industry, which required little capital investment but a large number of low-skilled workers who were willing to work long hours assembling ready-to-wear garments. Ironically, they occupied the very same position that Japan had occupied a decade earlier.

While Japan had captured its markets by underselling textiles made in the United States and Europe in the 1950s, the Asian Tigers captured their export market by underselling Japanese-made textiles in the 1960s. It was, in fact, partly the emergence of these cheaper products, as well as the accumulation of capital, that pushed the Japanese government into channeling its industries in a different direction and leaving the textile business in the 1960s. The Asian Tigers replaced Japan as the low-wage, low-cost producers of the global economy.

Learn more: East Asia’s Tiger’s—Restore the Roar?

Image of working with sewing machine

Electronic Revolution

Picture of Vintage Stereo Receiver
The Asian Tigers were able to produce radios, televisions, sewing machines, and motorcycles more cheaply than Japan.

In the 1970s, once again following the Japanese path, these Asian Tigers had accumulated sufficient capital to embark on the next phase of capital-intensive development. Once again, there was a push/pull mechanism with Japan as these countries became able to produce radios, televisions, sewing machines, and motorcycles more cheaply than Japan, which in turn helped push Japan into the high-technology industries.

By the 1980s, these other countries were beginning even to encroach on Japan’s high-technology industries with the production of computers and biotechnology. By 1976, the Asian Tigers were producing an astonishing 60% of the Third World’s manufactured exports, with only 3% of its population.

From 1963 to 1976, their combined growth rate was higher than 6%, compared to less than 2% for India and other South Asian nations. In terms of per capita income, just to give one example, in Korea, it rose from an annual per capita income of $146 in the 1950s to $1,500 in 1980. After the less certain 1980s, in the 1990s, economic growth hovered at approximately 8% in the entire region until the regional crash of 1997; again, this is in contrast to approximately 3% in the United States during the same period.

Tables Turn

By the mid-1980s, the United States and Europe could no longer sell manufactured goods to East Asia and had entered into a reverse of the traditional neocolonialist relationship.The West was exporting food and raw materials to East Asia and buying their manufactured goods; that is what has been running up the huge trade deficit between the United States and East Asia. Two thirds of Asian exports were sold in the First World.

Learn more: Asian Tigers—The New Industrialized Nations

The ASEAN Nations

In the late 1960s, another group of Asian lands—Indonesia, the Philippines, Malaysia, and Thailand—tried to get on the bandwagon. They formed the Association of Southeast Asian Nations (ASEAN) to promote development, and by the early 1970s, they were drawn into the region’s trading network. These countries deviated from the original model of Japan and the Gang of Four because they were, in contrast to those countries, rich in natural resources such as petroleum, natural gas, wood, and foodstuffs.

It was, in fact, this complementarity with the Gang of Four and Japan that first got them into the regional trading network to begin with. The initial trading relationships between the ASEAN countries and the Gang of Four and Japan looked more like a conventional dependence relationship. Those countries exported raw materials and food to Japan and the Gang of Four, and Japan and the Gang of Four imported manufactures back. But what happened then, as in these classic dependence models, was this: The Japanese, Korean, and Taiwanese businesses invested heavily in these natural resources—the oil, mining, logging, and farming enterprises in the ASEAN countries.

Picture of Chainsaw being used to cut up felled tree in Philippines
A forest worker in the Philippines prepares trees for transport.

By the end of the 1970s, the ASEAN nations began to deviate from the classic dependency model. They embarked on the same low-wage, labor-intensive development strategy that Japan and the Gang of Four had in the 1960s and the 1970s. Just as the Asian Tigers had displaced Japan from this market, so these newly industrialized countries began to displace the Asian Tigers in the 1980s with cheaply made textiles that captured the market; however, the slight difference here is that they continued to export commodities as well, so they did not make the full transition to manufactured exports.

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Still, the attraction of ever-lowering wages brought in major Western clothing industries, which increasingly searched out the lowest available labor markets for assembling their products. This is what allows, for example, the Wal-Mart chain to push prices ever lower. Thus, during this period, when many Third World nations were struggling under the weight of foreign debt and the effects of the post–1973 recession, these ASEAN countries experienced growth rates between 6% and 8%.

Learn more: Government versus Market in East Asia

Labor Unrest

One of the keys to the success of this development strategy, as in Japan, was the ability to repress potential labor unrest arising from this low-wage strategy; here, the authoritarian state played a crucial role. All of the countries in the region had some form of authoritarian or soft-authoritarian state—at least in the initial decades of industrialization—that could perform this repressive function. South Korea, like Japan, had a democratic constitution—but it had a military-dominated, one-party system since 1961.

One of the keys to the success of this development strategy, as in Japan, was the ability to repress potential labor unrest arising from this low-wage strategy

Taiwan had an openly undemocratic one-party system dominated by the Guomindang (GMD) when they left China after the Communists won in 1949 until 1986, when it began a 10-year transition to a freer electoral system. Hong Kong was a special case because it was a British colony up until its transfer to China in 1997. Both the Philippines and Indonesia began their postcolonial status with democratic political systems, but in both cases, the countries experienced military coups in the mid-1960s, which established long-term dictatorships in the crucial period of industrial development. Not until the mid-1980s in the Philippines—1986—was there restoration of democracy, and until the 1990s in Indonesia.

In the Philippines and Indonesia, as well as in Thailand, the growing tensions caused by their low-wage industrialization model resulted in violent rural insurrections that were ruthlessly put down by their authoritarian governments. The insurrections rose out of resentments caused by the widening gap between the entrepreneurial few and the poverty of the rural masses who were faced with the choice of working as landless laborers in the countryside or emigrating to the cities and taking those low-wage—essentially sweatshop—jobs.

Thus, the government’s ability to prevent labor pressure from raising wages and improving conditions was critical to maintaining their edge in the global market and, thus, was critical to their development strategy.

Keep reading:
World Economics: A Historical Perspective
International Economic Institutions: Globalism vs. Nationalism
The Story of Japanese Cuisine

From the Lecture Series: Interpreting the 20th Century: The Struggle Over Democracy
Taught by Professor Pamela Radcliffe, Ph.D.

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